Lenihan's extended start-up tax break not signed into law

MINISTER FOR Finance Brian Lenihan extended a tax break for new business in Wednesday’s Budget that is not yet available because he has not signed it into law.

On Wednesday, Mr Lenihan announced he intends to extend a scheme he introduced last year that exempts new companies from corporate taxes for three years.

The original scheme applied to businesses that started up in 2009, and the Minister said he would be extending it to new companies set up next year. However, Mr Lenihan has yet to sign the order giving effect to the original scheme as it has been delayed by discussions between his department and the EU’s competition directorate, which monitors state aid to business.

A department spokesman told The Irish Timesyesterday the issue has now been settled, and said the Minister would be signing the order shortly. He pointed out there was no need to implement it before October next year, the point at which companies that began trading in 2009 would have to make returns to the Revenue.

He explained this was why the Minister did not mention that the original law has yet be enacted.

EU law basically bans state aid where it is likely to distort normal competition between businesses, but allows exceptions to this, depending on the circumstances. Member state governments have to report any proposed measures likely to breach state aid regulations.

A department spokesman explained yesterday that, while exempting individual start-up companies from corporate taxes is not likely to contravene state aid rules, there is a danger if they benefited from some other form of support that this could result in a breach.

He said that the talks between the Government and the EU authorities were focused on coming up with some form of reporting arrangement that would deal with this eventuality.

In his speech, Mr Lenihan estimated that the extension would cost the exchequer €15 million in taxes foregone over three years.

It was one of a number of “business friendly” initiatives in the Budget.

The reaction to the Minister’s announcement last year that he intended exempting start-ups from corporation tax was mixed.

Commentators pointed out that few businesses make enough profits to be eligible for tax in the first place during the first three years of their existence.

A number of observers pointed out this week that he has yet to sign the original order into law. Kevin McLoughlin, head of tax at Ernst and Young, raised the issue at the firm’s Budget briefing on Thursday.